Texas Highway Funding. Legislative Primer

Transcription

1 Texas Highway Funding Legislative Primer SUBMITTED TO THE 82ND TEXAS LEGISLATURE MARCH 2011 LEGISLATIVE BUDGET BOARD STAFF SECOND EDITION

2 Texas Highway Funding Legislative Primer SUBMITTED TO THE 82ND TEXAS LEGISLATURE LEGISLATIVE BUDGET BOARD STAFF MARCH 2011 SECOND EDITION COVER PHOTO COURTESY OF SENATE MEDIA

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4 TABLE OF CONTENTS INTRODUCTION... 1 STATE HIGHWAY FUND... 3 State.Motor.Fuels.Tax... 3 Federal.Funds... 6 State.Highway.Fund.Revenue.Bonds.and.Short-term.Notes... 9 Motor.Vehicle.Registration.Fees Motor.Vehicle.Registration.Fees.for.Special.Vehicles Sales.Tax.on.Lubricants Toll.Revenues.and.Comprehensive.Development.Agreements Pass-Through.Tolling Other.Sources.of.Revenue TEXAS MOBILITY FUND Issuance.and.Sale.of.Obligations Driver.Responsibility.Program.Fines.and.State.Traffc.Fines Certain.Fees.Collected.by.the.Department.of.Public.Safety Certificate.of.Title.Fees GENERAL REVENUE FUND Highway.Beautification.Fees General.Obligation.Bonds LEGISLATIVE BUDGET BOARD STAFF MARCH 2011 TEXAS HIGHWAY FUNDING: LEGISLATIVE PRIMER i

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6 OVERVIEW OF FINANCING MECHANISMS AVAILABLE TO THE TEXAS DEPARTMENT OF TRANSPORTATION FOR HIGHWAY NEEDS INTRODUCTION Texas has traditionally used a pay-as-you-go financing system in which roads are built as funding becomes available. Funding for the pay-as-you-go system in Texas is generated from user fees (i.e., motor fuels tax revenues and registration fees) and Federal Funds. However, recent circumstances have increased the cost of constructing and maintaining transportation corridors and reduced the capacity of the traditional pay-as-you-go system. The Texas Department of Transportation has been given the statutory authority to issue debt and enter into public-private partnerships. The agency s ability to use these financing tools was diminished in 2007 when the Eightieth Legislature enacted legislation that restricted the use of public-private partnerships. This report provides an overview of the financing mechanisms available to the Texas Department of Transportation to construct and maintain highways. Additionally, the constitutional and statutory requirements and historical expenditures and trends of these revenue sources are discussed. The majority of revenue sources for highway construction and maintenance are deposited into either the State Highway Fund or the Texas Mobility Fund. DISCUSSION The Texas Department of Transportation (TxDOT) estimates that $11 billion per year is spent on transportation in Texas by local, state, and federal governments. The majority of these expenditures are applied to highway and other road projects; TxDOT is the largest contributor to transportation expenditures in the state. During the biennium, TxDOT had an All Funds budget of $18.6 billion. Appropriations to TxDOT for transportation planning, right-of-way acquisition, and construction accounted for $8.2 billion, or 48.4 percent, of the agency s budget. An additional $5.9 billion, or 34.6 percent of TxDOT s budget, was included in the General Appropriations Act for maintenance and preservation of the state s transportation system. Another $1.59 billion in highway and bridge construction funds was provided under the American Recovery and Reinvestment Act (ARRA) for ready to go projects in the biennium. During the biennium spending on highway construction and maintenance accounted for 4.2 percent of the state s net expenditures. Figure 1 shows the net expenditures on highway construction and maintenance in Texas from fiscal years 2005 to 2010 compared to the total state budget. TxDOT was established as the State Highway Department in 1917 by the Thirty-fifth Legislature. It was created to distribute monetary aid to counties for the purpose of highway construction and maintenance but also undertook road construction projects. In 1921 the Federal Aid to Roads Act was amended, requiring states to take over responsibility for road design, construction, and maintenance after In 1924, the State Highway Department also took over responsibility for all state highway maintenance, which had previously been left to counties. During the late 1920s, the Legislature adopted the pay-as-you-go system of highway financing. The Forty-second Legislature, 1932, provided that highway financing was a state responsibility and limited counties contributions to providing right-of-way. TxDOT was established in 1991, taking over responsibilities of the Department of Aviation, Motor Vehicle Commission, and State Department of Highways and Public Transportation. Texas pay-as-you-go system required that project funding be available prior to the maintenance and construction of highway capacity. Traditionally, road financing was generated FIGURE 1 NET EXPENDITURES ON HIGHWAY CONSTRUCTION AND MAINTENANCE, FISCAL YEARS (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) Highway Construction and Maintenance $4,630.4 $5,132.8 $5,359.4 $5,208.6 $4,252.9 $3,353.5 Net Expenditures Excluding Trust (Statewide) $64,693.0 $68,833.2 $74,500.8 $81,935.8 $88,575.6 $90,434.1 LEGISLATIVE BUDGET BOARD STAFF MARCH 2011 TEXAS HIGHWAY FUNDING 1

7 through motor vehicle registration fees, taxes on motor fuels and lubricants, and Federal Funds. In recent years transportation funding has not kept pace with the state s road maintenance and construction needs. From 2002 to 2007, the highway construction cost index increased at an abnormally fast rate, rising by 62 percent. The gasoline tax that went into effect in 1991 was set at $0.20 per gallon and is worth $0.12 today when adjusted for inflation using the Consumer Price Index. As the state s population, economy, and vehicle miles traveled have increased, the cost of materials for road construction has also increased. The value of the gasoline tax has eroded due to inflation and improvements in vehicle fuel economy. The Texas state highway system now has over 80,000 centerline miles and 192,000 lane miles of roads. From 1995 to 2008, the number of national highway system lane miles in Texas grew by approximately 11.7 percent. During this same time the state s population increased by almost 30 percent and the number of vehicle miles traveled increased more than 50 percent. Much of this growth has been in the state s urban areas, which are some of the most congested cities in the country. The Texas Transportation Institute ranked the Houston area fourth in the country for annual hours of delay per traveler in The Dallas-Fort Worth- Arlington area ranked seventh, Austin ranked 15th, and San Antonio ranked 35th. With the pay-as-you-go system no longer able to sustain the needs of the state s highway system, new financing tools have been made available to TxDOT. Traditional methods of financing for highway construction and maintenance include revenues from state motor fuel taxes, oversize/overweight permits, motor vehicle sales and use tax, and motor vehicle registration fees. New financing methods include the use of bond proceeds and comprehensive development agreements (CDAs). These revenues are deposited to either the State Highway Fund or the Texas Mobility Fund. Figure 2 and Figure 3 show the primary sources of revenue deposited into each fund. FIGURE 2 SOURCES OF REVENUE DEPOSITED TO THE STATE HIGHWAY FUND, FISCAL YEARS 2001 TO 2010 COMPTROLLER OF PUBLIC REVENUE GENERATED ACCOUNTS REVENUE CODE REVENUE SOURCE (IN MILLIONS) 3901 Motor Fuels Tax Allocations $21, Federal Receipts Matched Transportation Programs $19, Federal Receipts Not Matched Other $ Bond Proceeds $4, Special Vehicle Registration Fees $ Toll Revenues $ Motor Lubricants Sales Tax $ Motor Vehicle Title Certificates $ Motor Vehicle Registration Fees $9, Interest on State Deposits $ Comprehensive Toll Development Agreement Receipts $25.8 (Concessions Private) 3048 Surplus Toll Agreement Receipts (Concessions Public) $3,197.1 Source: Legislative Budget Board. FIGURE 3 SOURCES OF REVENUE DEPOSITED TO THE TEXAS MOBILITY FUND, FISCAL YEARS 2003 TO 2010 COMPTROLLER OF PUBLIC REVENUE GENERATED ACCOUNTS OBJECT CODE REVENUE SOURCE (IN MILLIONS) 3020 Motor Vehicle Inspection Fees $ Driver License Point Surcharges $ Driver License Fees $ Driver Record Information Fees $ Court Fines $ Inter State Deposits & Treasury Investments General Non-Program $138.3 Source: Legislative Budget Board. 2 TEXAS HIGHWAY FUNDING LEGISLATIVE BUDGET BOARD STAFF MARCH 2011

8 STATE HIGHWAY FUND The State Highway Fund consists of revenues generated by a variety of sources; as Figure 4 shows the state motor fuels tax and Federal Funds are the fund s two largest sources of revenue. Over time, however, the percentage of revenue deposited to the State Highway Fund generated by other revenue sources increased. In fiscal year 1999, the combined total of revenue generated from sources other than the state motor fuels tax and Federal Funds made up 24 percent of the State Highway Fund. In fiscal year 2008, this percentage had increased to a high of 61 percent as a result of new financing mechanisms such as bonds, tolls, and concession agreements. Chapter 222 of the Texas Transportation Code provides that revenue required to be used for public roads by either the Texas Constitution or federal law and that is deposited to the State Highway Fund be used solely for the following purposes: to improve the state highway system; to mitigate adverse environmental effects resulting from state highway construction or maintenance; or policing and administration of state traffc and safety laws by the Texas Department of Public Safety (DPS) on state highways. All other funds in the State Highway Fund are statutorily authorized to be used for any function that the Texas Department of Transportation performs. The largest expenditure from the State Highway Fund is for highway construction. During the biennium, construction and construction-related activities made up 48.4 percent of all State Highway Fund expenditures. Historically, the primary uses of revenue from the fund for purposes other than highway construction have been for salaries and wages, employee benefits, highway repairs and maintenance, and professional service and fees. Figure 5 shows more detail regarding State Highway Fund expenditures used for these purposes. STATE MOTOR FUELS TAX The motor fuels tax is applied to the sale of gasoline, diesel fuel, and liquefied gas. The gasoline tax was first imposed at the rate of $.01 per gallon in Three-fourths of the revenue was deposited to the State Highway Fund and the remaining one-fourth was deposited to the Available School Fund. In 1941, a $0.08 per gallon tax was applied to the purchase of diesel fuel and a $0.04 per gallon tax was applied to the sale of liquefied gas. These tax rates have all been increased multiple times, as shown in Figure 6. Article VIII, Section 7-a, was added to the Texas Constitution in 1946, requiring three-fourths of all net revenue generated by motor fuels taxes to be used only for acquiring rights-ofway; constructing, maintaining, and policing public roadways; or for the payment of principal and interest on certain road district bonds or warrants. The Texas Constitution dedicates the remaining one-fourth of the motor fuels tax to the Available School Fund. This amendment legally formalized the practice that had been in place since the state gasoline tax was instituted. Texas Tax Code, Chapter 162, Subchapters B and C, contain provisions relating to the state s gasoline and diesel taxes. FIGURE 4 STATE HIGHWAY FUND SOURCES OF REVENUE, FISCAL YEARS 2001 TO 2010 FISCAL TOTAL REVENUES STATE MOTOR FUELS TAX FEDERAL FUNDS ALL OTHER REVENUE SOURCES YEAR (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) 2001 $4,940.2 $2,021.8 $1,808.8 $1, $5,905.2 $2,078.1 $2,320.0 $1, $5,834.2 $2,087.0 $2,604.1 $1, $6,102.4 $2,130.0 $2,776.4 $1, $7,037.4 $2,148.3 $3,250.4 $1, $8,868.6 $2,194.2 $3,090.6 $3, $8,745.3 $2,238.2 $1,974.3 $4, $12,855.0 $2,276.0 $2,690.1 $7, $7,640.2 $2,226.6 $2,666.6 $2, $7,578.6 $2,227.0 $1,868.2 $3,483.4 LEGISLATIVE BUDGET BOARD STAFF MARCH 2011 TEXAS HIGHWAY FUNDING 3

9 FIGURE 5 PRIMARY EXPENDITURES FROM THE STATE HIGHWAY FUND, FISCAL YEARS 2001 TO 2010 HIGHWAY SALARIES AND WAGES/ REPAIRS AND PROFESSIONAL SERVICES FISCAL CONSTRUCTION* EMPLOYEE BENEFITS** MAINTENANCE* AND FEES YEAR (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) 2001 $2,978.8 $947.1 $ $3,344.2 $1,035.5 $247.9 $ $3,287.7 $1,062.6 $308.6 $ $3,492.9 $1,142.0 $334.6 $ $4,630.4 $1,152.9 $334.1 $ $5,132.8 $1,265.1 $374.5 $ $5,359.4 $1,314.2 $357.8 $ $5,208.6 $1,013.4 $418.5 $ $4,204.2 $1,354.7 $462.1 $ $2,708.1 $1,295.5 $435.6 $291.8 *From 1999 to 2001, highway construction and maintenance expenditures were combined as one category. **Salaries and wages/employee benefits includes some expenses for employees outside of TxDOT. SourceS: Legislative Budget Board; Comptroller of Public Accounts. FIGURE 6 CHANGES IN MOTOR FUELS TAX RATES LEGISLATURE GASOLINE TAX DIESEL TAX LIQUEFIED GAS Forty-seventh(1941) $0.04 per gallon No Change No Change Forty-eighth (1943) No Change $0.06 per gallon No Change Fifty-fourth (1955) $0.05 per gallon $0.065 per gallon $0.05 per gallon Sixty-seventh (1981) $0.01 rate reduction $0.005 rate reduction (certain groups only) (certain groups only) No Change Sixty-eighth (1984) $0.10 per gallon $0.10 per gallon $0.10 per gallon Sixty-ninth (1986) $0.15 per gallon $0.15 per gallon $0.15 per gallon Seventieth (1987) $0.15 per gallon $0.15 per gallon $0.15 per gallon Seventy-first (1989) No Change No Change Adjusted decal rate schedule Seventy-second (1991) $0.20 per gallon $0.20 per gallon No Change Gasoline and diesel taxes are paid by suppliers. Suppliers receive reimbursement for the gasoline tax from distributors and importers. Terminal operators then pay the tax to distributors and importers, and consumers finally pay terminal operators at the point of sale. Suppliers, terminal operators, and licensed distributors file a monthly report, including payment, for the amount of tax reported due with the Comptroller of Public Accounts (CPA). Licensed distributors and importers that remit gasoline taxes in a timely manner are authorized to retain 1.75 percent of total taxes paid to suppliers and distributors for administrative expenses. Suppliers are authorized to retain 2 percent of the tax collected if timely payment to the state is made. In addition to refunds authorized for certain vehicles not propelled on public roadways, exemptions from gasoline and diesel taxes are allowed for: the federal government; public school districts; commercial transportation companies or metropolitan rapid transit authorities providing public school transportation services; certain gasoline exporters and movements between terminals, and fuel used for aviation; 4 TEXAS HIGHWAY FUNDING LEGISLATIVE BUDGET BOARD STAFF MARCH 2011

10 transit companies are authorized a refund of one cent per gallon for gasoline and diesel fuel used in transit vehicles; certain purchases of dyed diesel fuel and kerosene are exempt from the diesel fuel tax; and the volume of water, fuel ethanol, renewable diesel, biodiesel, or mixtures thereof that are blended with taxable diesel fuel. Texas Tax Code, Chapter 162, Subchapter D, regulates the state liquefied gas tax. This tax applies to the use of liquefied gas for powering motor vehicles on state highways. The tax is annually pre-paid to the CPA by the operator of a liquefied gas-powered vehicle. Certain motor vehicle dealer s and interstate truckers are required to pay the tax to a licensed dealer when purchasing liquefied fuel. Dealers report and remit taxes due to the CPA on a quarterly basis. Licensed dealers selling liquefied gas receive 1 percent of the tax they collect as reimbursement for administrative expenses and remitting taxes in a timely manner. Interstate truckers purchasing liquefied gas receive ½ a percent of the tax they pay to cover reporting requirements and for timely remitting the taxes due. Exemptions from the tax are applied to public school districts and counties, certain commercial transportation companies, and metropolitan rapid transit authorities providing public school transportation. Texas Tax Code, Chapter 162, authorizes the CPA to retain up to 1 percent of all motor fuels taxes for administration and enforcement of the taxes. Deductions for refunds and administration are made from the motor fuels tax on a monthly basis. After deductions, one-fourth of the net tax is deposited to the Available School Fund and one-half is deposited to the State Highway Fund for the state road system. The remaining one-fourth is deposited to the County and Road District Highway Fund until a total of $7.3 million is deposited during a fiscal year, at which point the remainder of the one-fourth of net collections is deposited to the State Highway Fund. Diesel and liquefied gas taxes are allocated in a slightly different manner. Deductions are also made from diesel and liquefied gas taxes for refunds and administrative purposes. After deductions, one-fourth of diesel and liquefied gas taxes are deposited to the Available School Fund. The remaining three-fourths of the taxes are deposited to the State Highway Fund. Figure 7 shows the allocation of gasoline tax revenues, and Figure 8 shows an overview of motor fuels tax revenues from fiscal years 2001 to The state s gasoline tax of $0.20 per gallon is lower than the national average, which is $0.297 per gallon. When adjusted for inflation using the Consumer Price Index, the rate of gasoline and diesel fuel tax as set in 1991 is equivalent to $0.12 today. Historically, most growth in motor fuels tax revenue is the result of legislative rate increases, population growth, and increased fuel consumption. Figure 9 shows FIGURE 7 ANNUAL STATE GASOLINE TAX FUND ALLOCATION State Gasoline Tax 1.75% retained by licensed distributors for timely remittance/administration 2.0% retained by suppliers for timely remittance of the tax 1.0% retained by the Comptroller of Public Accounts for administration and deductions for refunds 25% deposited to the 25% (up to an annual total Available School Fund of $7.3 million) deposited to County and Road District Highway Fund Limit After County and Road District Highway Fund Limit, collections are deposited to the State Highway Fund 50% deposited to the State Highway Fund Source: Legislative Budget Board. LEGISLATIVE BUDGET BOARD STAFF MARCH 2011 TEXAS HIGHWAY FUNDING 5

11 FIGURE 8 STATE MOTOR FUELS TAX REVENUES BY TYPE OF MOTOR FUEL, FISCAL YEARS 2001 TO 2010 TOTAL STATE MOTOR FUELS TAX REVENUE DEPOSITED TO TOTAL GASOLINE TOTAL DIESEL TOTAL LIQUEFIED FISCAL STATE HIGHWAY FUND TAX REVENUES TAX REVENUES TAX REVENUES YEAR (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) 2001 $2,021.8 $2,152.3 $611.4 $ $2,078.1 $2,225.0 $606.8 $ $2,087.0 $2,226.6 $610.6 $ $2,130.0 $2,272.3 $643.9 $ $2,148.3 $2,259.6 $673.4 $ $2,194.2 $2,257.1 $735.0 $ $2,238.2 $2,300.9 $751.6 $ $2,276.0 $2,315.5 $784.9 $ $2,226.6 $2,326.1 $705.5 $ $2,227.0 $2,341.6 $699.3 $1.0 FIGURE 9 MOTOR FUELS TAX COLLECTIONS BASE COLLECTIONS AND LEGISLATIVE INCREASES, FISCAL YEARS 1972 TO 2003 IN MILLIONS $2,500 $2,000 $1,500 $1,000 $500 $ Base Legislation Source: Texas Comptroller of Public Accounts what motor fuels tax collections would have been if the base rate did not change and what collections have been with legislative rate increases. Furthermore, while motor fuels tax revenues in Texas are increasing, they are doing so at a decreasing rate. The nominal growth of motor fuels tax revenues since the last increase went into effect in 1991 has largely been the result of increases in the number of drivers and vehicle miles traveled in the state. Figure 10 shows that when adjusted for population and vehicle miles traveled the growth rates appear smaller, and even negative, during some years. FEDERAL FUNDS Federal transportation funding is primarily allocated from the Federal Highway Trust Fund, which is capitalized from federal gasoline and diesel taxes; truck, bus, and trailer taxes; tire taxes; heavy vehicle usage fees; and taxes on alternative fuels. Texas is considered a donor state, meaning more money is deposited to the Federal Highway Trust Fund from the collection of federal taxes and fees in Texas than is returned to the state in Federal Funds for highways. All Federal Funds allocated to Texas for transportation are statutorily required to be administered by TxDOT. Figure 11 shows the distribution of matched and unmatched 6 TEXAS HIGHWAY FUNDING LEGISLATIVE BUDGET BOARD STAFF MARCH 2011

12 FIGURE 10 GROWTH RATE OF MOTOR FUELS TAX COLLECTIONS, FISCAL YEARS 1993 TO 2009 PERCENTAGE CHANGE 8% 6% 4% 2% 0% -2% -4% -6% MFT Growth Rate Growth Adjusted for Population Growth Adjusted for VMT Source: Legislative Budget Board. FIGURE 11 MATCHED AND UNMATCHED FEDERAL FUNDS FOR TRANSPORTATION PROGRAMS DEPOSITED TO THE STATE HIGHWAY FUND, FISCAL YEARS 2001 TO 2010 FISCAL YEAR TOTAL FEDERAL FUNDS (IN MILLIONS) FEDERAL FUNDS MATCHED (IN MILLIONS) FEDERAL FUNDS UNMATCHED (IN MILLIONS) FEDERAL PASS-THROUGH REVENUE (IN MILLIONS) 2001 $1,813.7 $1,808.8 $ $2,329.9 $2,320.0 $ $2,625.3 $2,604.1 $16.9 $ $2,177.0 $2,776.4 $20.9 $ $3,321.3 $3,250.4 $25.0 $ $3,174.7 $3,090.6 $33.2 $ $2,072.3 $1,974.3 $32.8 $ $2,775.5 $2,690.1 $34.9 $ $2,710.4 $2,666.6 $39.3 $ $1,922.8 $1,868.2 $31.3 $23.3 Federal Funds to the State Highway Fund as well as funds that pass-through the State Highway Fund before being allocated to other entities from fiscal years 2001 to The majority of federal transportation funding provided to TxDOT is for highway planning and construction; all Federal Funds dedicated to roads are deposited into the State Highway Fund. Current federal funding allocations were set forth in the Safe, Accountable, Flexible, Effcient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). This was set to expire in 2009, but was extended by Congress for 18 months. Authorizations for Texas were increased by 38 percent in SAFETEA-LU over the previous authorization. Many of the Federal Funds provided for highways are grant programs that require the state to provide matching funds. In rare instances, funds are provided for events such as natural disasters that do not require a match. Figure 12 shows the federal aid programs that are the primary sources of federal highway funding for Texas. Prior to the enactment of SAFETEA-LU, few rescissions from transportation funding had been made. In 2005 the Federal Highway Administration estimated that $705 LEGISLATIVE BUDGET BOARD STAFF MARCH 2011 TEXAS HIGHWAY FUNDING 7

13 FIGURE 12 FEDERAL FUNDING SOURCES FOR TRANSPORTATION, FEDERAL FISCAL YEAR 2010 FEDERAL FUNDS ALLOCATED FOR FISCAL YEAR 2010 PROGRAM NAME (IN MILLIONS) AUTHORIZED USES Transportation Equity Bonus $1,204.0 Ensures that Texas does not receive less than 92 percent (during 2008) of its relative rate of return.* The federal share allocated to specific projects ranges from 80 percent to 100 percent depending on the program. Surface Transportation Program $596.7 For use on any federal-aid highway, funds are available for four years, federal share ranges from 80 percent to 100 percent. National Highway System $562.0 Funds for improving urban and rural roads, funds are available for four years, federal share ranges from 80 percent to 90 percent. Interstate Maintenance $445.8 Funds for certain activities on the Interstate System, funds are available for four years, federal share is 90 percent. Bridge Rehabilitation and $146.2 Funds for certain activities relating to highway bridges and bridges on Replacement Program public roads, federal share is 80 percent. High Priority Transportation $136.0 Earmarks identified for Texas projects in SAFETEA-LU, apply to specified Projects road projects, federal share is 80 percent. Congestion Mitigation and $112.9 Projects must be in air-quality nonattainment and maintenance areas for Air Quality Improvement ozone, carbon monoxide, and small particulate matter, federal share is 80 percent to 90 percent. Highway Safety Improvement $93.5 Applies to public roads, publicly owned bicycle and pedestrian paths, Program rail crossings, and certain rural roads, federal share is 90 percent to 100 percent. Coordinated Border Infrastructure $55.8 Applies to roads used to move motor vehicles at or across the border Program between the U.S. and Mexico, federal share is 80 percent to 100 percent. Metropolitan Planning $22.3 For distribution to Metropolitan Planning Organizations to develop transportation plans and improvement programs, federal share is 80 percent. State and Community Highway $18.0 Must be used only for highway safety purposes, federal share is 80 percent Safety Grants during fiscal year TxDOT received 87.8 percent of these funds while other state agencies received the remaining 12.2 percent. Railway-Highway Crossings $17.0 Funds must be used to install and upgrade protective devices at rail Program crossings, federal share is 90 percent. Safe Routes to Schools Program $15.2 Funds are to be used for planning, developing, and implementing projects improving safety and reducing congestion near schools, funds are provided directly to communities. Note: Rescissions from Congress have offset these returns. Source: Legislative Budget Board. million would be rescinded from appropriations to Texas under SAFETEA-LU, meaning Texas estimated net apportionments were scheduled to be $13.8 billion. From January 2005 through August 2010, ten federal rescissions were made from amounts appropriated under SAFETEA- LU. Texas share of these rescissions totaled $2,232.5 million and has primarily been taken from unobligated apportionments. Prior to these rescissions, Texas was scheduled to receive a minimum of $14.5 billion under SAFETEA-LU ( ) in Federal Funds for transportation. However, after rescissions Texas is expected to receive approximately $12.3 billion in Federal Funds. Federal Funds are typically provided to states as a reimbursement for expenditures the state has already made on transportation projects. Figure 13 shows that, on federally approved projects, a contractor performs road construction or maintenance and is paid by TxDOT for the work. TxDOT then bills the Federal Highway Administration for the federal share of the project and is reimbursed. Once Federal Funds are obligated, the reimbursement process continues for the length of the project which can take several years. Therefore, funds may be obligated based only on amounts authorized in SAFETEA-LU. Additionally, Federal Fund amounts presented in TxDOT s budget represent projected reimbursements from existing and future obligations. The Texas Constitution was amended in 1988 to include Section 7-b, Article VIII. This provision provides that federal reimbursements for state funds dedicated by the state 8 TEXAS HIGHWAY FUNDING LEGISLATIVE BUDGET BOARD STAFF MARCH 2011

14 FIGURE 13 REIMBURSEMENT PROCESS FROM FEDERAL HIGHWAY ADMINISTRATION (FHWA) CONTRACTOR Performs work Bills TxDOT TxDOT Processes bills from contractor Pays contractor Bills FHWA FHWA Processes bills from TxDOT Reimburses TxDOT Source: Legislative Budget Board. constitution for and spent to acquire rights-of-way, to construct and maintain public roads, and to police public roads are constitutionally dedicated to those purposes. Texas Transportation Code, Chapter 222, Subchapter B, gives statutory guidance for the use of Federal Funds for transportation. This chapter requires that all federal funding appropriated to Texas for public road construction be spent by or under the supervision of TxDOT. The Texas Transportation Commission (TTC) is required to distribute federal aid for transportation through selecting highway projects that meet requirements established by federal formulas. During fiscal year 2010, $23.3 million in Federal Funds for transportation-related projects other than road construction passed through TxDOT, ultimately being provided to other entities such as DPS and local governments. The federal government has also established several financing mechanisms that states may use to more quickly generate funds for highway construction and maintenance. Any federally funded surface transportation project may use private activity bonds issued through a public entity after the federal government has approved a public-private agreement and the issuance of bonds between a private and state entity. Private activity bonds are intended to incentivize the private sector to participate in financing projects by providing a tax exemption on interest earned from bond proceeds. The federal government created the State Infrastructure Bank (SIB) as a pilot program in 1995, and Texas was chosen as one of 10 states in which to test the program. The creation of Texas SIB was authorized during the Seventy-fifth Legislature, The SIB is overseen by TTC and operates as a revolving loan program in the State Highway Fund which provides lower interest rates to local entities constructing federally approved surface transportation projects. Since the SIB s creation, TTC has approved 90 SIB loans totaling approximately $382 million. TxDOT estimates that these loans have leveraged over $3.5 billion for Texas transportation projects. The Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) was created in 1998 and allowed the U.S. Department of Transportation to provide secured loans, loan guarantees, and standby lines of credit to major surface transportation projects. These forms of credit are intended to generate private and non-federal coinvestment in projects improving the surface transportation system. The Central Texas Turnpike System (Loop 1, SH 45N, and SH 130 Segments 1-4), US 183-A, and SH 130 Segments 5 and 6 received TIFIA assistance. Congress passed the American Recovery and Reinvestment Act (ARRA) in February Under ARRA, Texas was allocated $2.25 billion in federal highway and bridge construction funds for ready to go projects. TxDOT s total Federal Funds appropriations for the biennium included an estimated $1.6 billion in ARRA funds for highway and bridge construction. The federal ARRA legislation also provided funds for the Build America Bond (BAB) program, which authorizes state and local governmental entities to issue taxable bonds to finance capital projects and provides federal subsidies to offset the entities borrowing costs. TTC has used the BAB program to issue Texas Mobility Fund bonds, State Highway Fund bonds, and Proposition 12 bonds. STATE HIGHWAY FUND REVENUE BONDS AND SHORT-TERM NOTES In 2003, both the Texas Constitution and the Texas Transportation Code were amended to allow TTC to issue bonds, public securities, and enter into credit agreements secured by a pledge and payable from revenues in the State Highway Fund. The Texas Transportation Code was amended again in 2007 to set the maximum aggregate principal amount of State Highway Fund Revenue Bonds that may be issued at $6.0 billion. Of this $6.0 billion, $1.2 billion of the principal amount of State Highway Fund Revenue Bonds is set aside for projects that reduce accidents or improve hazardous locations on the state highway system; and the principal amount of State Highway Fund Revenue Bonds that may be issued is limited to $1.5 billion per fiscal year. Because these bonds are secured by revenues in the State LEGISLATIVE BUDGET BOARD STAFF MARCH 2011 TEXAS HIGHWAY FUNDING 9

15 Highway Fund, they do not count toward the state s constitutional debt limit. State Highway Fund Revenue Bonds must: mature within 20 years of their dates of issuance, subject to any refundings or renewals; have a principal amount or terms that do not cause annual expenditures relating to State Highway Fund Revenue Bonds to exceed 10 percent of the amount deposited to the State Highway Fund in the immediately preceding year; and not be used on facilities of the Trans-Texas Corridor. Figure 14 shows revenues deposited to the State Highway Fund from the issuance of bonds. Figure 15 provides more information on State Highway Fund Bond issuances through fiscal year At the end of fiscal year 2010, $4,599.3 million in State Highway Fund bonds had been issued. Therefore, $1,400.7 million in State Highway Fund Bonds may still be issued under the statutory cap. TxDOT has indicated it plans to issue $1.4 billion in State Highway Fund Bonds during Additionally, of the $1.2 billion in State Highway Fund Bonds set aside for safety projects, all but $25 million had been allocated to projects at the end of fiscal year For the biennium, $1.2 billion in State Highway Fund bonds were appropriated and $847.5 million in All Funds was appropriated for debt service. Two short-term borrowing options are also available to TxDOT to provide funds for deposit into the State Highway Fund. Highway Tax and Revenue Anticipation Notes (TRANs) were authorized in 2003, which TTC is allowed to issue if a temporary cash flow shortfall in the State Highway Fund is anticipated. A Cash Management Committee comprised of the Governor, Lieutenant Governor, Speaker of the House, and Comptroller of Public Accounts must FIGURE 14 REVENUES DEPOSITED TO THE STATE HIGHWAY FUND FROM THE ISSUANCE OF BONDS, FISCAL YEARS 2006 TO 2010 FISCAL YEAR REVENUES FROM THE SALE OF GENERAL OBLIGATION/REVENUE BONDS (IN MILLIONS) 2006 $ $1, $1, $ $1,492.0 FIGURE 15 STATE HIGHWAY FUND REVENUE BOND ISSUANCES, CALENDAR YEARS 2006 TO 2010 AMOUNT DATE TYPE OF BOND (IN MILLIONS) DELIVERED Series 2006 $600.0 May 3, 2006 Series 2006B $100.0 November 8, 2006 Series 2006A $852.6 November 21, 2006 Series 2007 $1,241.8 October 25, 2007 Series 2008 $163.0 August 19, 2008 Series 2010 $1,500.0* July 27, 2010 *A federal subsidy of $54.1 million will be received from the federal government for the biennium through Build American Bond program in association with this issuance. This subsidy is being applied to interest accumulated on these bonds. Source: Texas Department of Transportation. approve the issuance of any TRANs based on a State Highway Fund cash flow shortfall forecasts created by TTC. The maximum amount of TRANs that can be issued at any given time is the maximum cash flow shortfall forecasted. TRANs are required to mature during the biennium in which they are issued and proceeds must be placed in a special fund in the state treasury and transferred as necessary to the State Highway Fund. TRANs and related credit agreements may be repaid from the State Highway Fund. To date, no TRANs have been requested or issued. In 2003, the Texas Constitution and Texas Transportation Code were amended to allow TTC to authorize TxDOT to borrow money from any source to carry out its functions. The purpose of this program is to facilitate effcient cash management operations in the State Highway Fund due to fluctuations caused by the cyclical nature and timing of deposits and payments. This loan may be an agreement, note, contract, or other form, and the term of the loan is prohibited from exceeding two years. The total amount of loans issued and outstanding cannot exceed twice the average monthly revenue deposited to the State Highway Fund during the 12 months preceding the loan. The loan may be repaid from legislative appropriations deposited to the State Highway Fund, and notes must be reviewed and approved by the Bond Review Board before issuance. These amendments allowed TTC to establish a commercial paper program in 2005 and authorize TxDOT to issue a maximum of $500 million in notes. The first issuance of commercial paper was during fiscal year 2006, as shown in Figure 16. At the end of fiscal year 2010, $65 million in principal for short-term borrowing was outstanding. The unborrowed capacity of 10 TEXAS HIGHWAY FUNDING LEGISLATIVE BUDGET BOARD STAFF MARCH 2011

16 FIGURE 16 REVENUES DEPOSITED TO THE STATE HIGHWAY FUND FROM THE ISSUANCE OF COMMERCIAL PAPER, FISCAL YEARS 2006 TO 2010 FISCAL REVENUES FROM THE ISSUANCE OF YEAR COMMERCIAL PAPER (IN MILLIONS) 2006 $ $ $ $ $60.0 commercial paper that remained at the end of fiscal year 2010 was $435 million. MOTOR VEHICLE REGISTRATION FEES Motor vehicle registration fees were established by the Thirtyfifth Legislature, 1917, at the rate of $.35 per horsepower with a minimum fee of $7.50. Numerous rate and base changes have occurred since The Eighty-first Legislature, Regular Session, 2009, passed House Bill 2553 to amend motor vehicle registration fees, effective September 1, Motor vehicle registration fee rates are currently based on the type, age, or weight of a motor vehicle. The fee for passenger cars weighing less than 6,000 pounds is based on a vehicle s age and ranges from $40.50 to $ Additional fees apply for specialty plates and souvenir plates. Under House Bill 2553 the fee for passenger vehicles will be $50.75 as of September 1, Most fees from specialty and souvenir plates are deposited to the General Revenue Fund, while most fees from nonpersonalized license plates are deposited to the State Highway Fund. State residents are required to register their vehicles and pay the motor vehicle registration fee on an annual basis. Figure 17 shows the amount of motor vehicle registration fees deposited to the State Highway Fund and the number of motor vehicles registered in Texas during the past 10 fiscal years. Texas Transportation Code, Section , provides the manner in which all required motor vehicle registration fees (excluding specialty and souvenir plates) are divided on a weekly basis. This is shown in Figure 18. County tax assessorcollectors also collect motor vehicle sales taxes. Prior to 1992, counties retained 5 percent of the motor vehicle sales taxes they collected. Beginning in 1992, counties no longer retained motor vehicle sales tax. Instead, they retained an additional amount of motor vehicle registration fees equal to FIGURE 17 MOTOR VEHICLE REGISTRATION FEE REVENUES DEPOSITED TO THE STATE HIGHWAY FUND, FISCAL YEARS 2001 TO 2010 MOTOR VEHICLE NUMBER OF MOTOR REGISTRATION FEE VEHICLES REGISTERED FISCAL REVENUES IN TEXAS YEAR (IN MILLIONS) (IN MILLIONS) 2001 $ $ $ $ $ $ $ $1, $1, $1, percent of the motor vehicle sales tax collected by the county. The Seventy-eighth Legislature, 2003, enacted legislation that phased in a reversal of this revenue exchange. The reversal started in 2004 and will be completed in 2015, when the counties will again retain 5 percent of the motor vehicle sales tax they collect. County tax assessor-collectors are statutorily authorized to deposit all motor vehicle registration fees collected into an interest-bearing account or certificate in the county depository for approximately one month upon collection. County tax assessor-collectors are then required to remit the fees to TxDOT but may retain the interest earned on these fees while they are in the county depository. TTC and TxDOT are required to deposit all revenue received from motor vehicle registration fees to the State Highway Fund under Texas Transportation Code, Section In 1946 the Texas Constitution was amended to add Article VIII, Section 7-a. This requires that motor vehicle registration fees may not be less than the maximum amount counties are allowed to retain under the legal rate during It also requires net revenues collected from motor vehicle registration fees to be used solely for acquiring rightsof-way, constructing, maintaining, and policing public roadways, and administration of traffc and safety laws on public roadways. LEGISLATIVE BUDGET BOARD STAFF MARCH 2011 TEXAS HIGHWAY FUNDING 11

17 FIGURE 18 WEEKLY MOTOR VEHICLE REGISTRATION FEE ALLOCATION, FISCAL YEAR 2006 TO THE PRESENT Motor Vehicle Registration Fees ($40.50 $58.50 depending on vehicle) collected by County Tax Assessor- Collector County Road and Bridge Fund ($350 for each mile of county road maintained not to exceed 500 miles; amounts retained for administration until a combined total of $60,000 is reached.) County Road and Bridge Fund TxDOT $50% of net collections until the amount credited $50% of net collections; deposited to the for the calendar year equals $125,000) State Highway Fund After County Road and Bridge Fund Limit TxDOT (State Highway Fund) Source: Legislative Budget Board. MOTOR VEHICLE REGISTRATION FEES FOR SPECIAL VEHICLES Motor vehicle registration fees for special vehicles are applied to oversized and overweight motor vehicles and manufactured housing. These fees were first implemented by the Forty-first Legislature, The rates vary by vehicle type, weight, dimension, and trip, and most of the current permit fees were set by the Eightieth Legislature, Many of these fees were amended by the Eighty-first Legislature, 2009, through House Bill 2553 and the new fees will go into effect on September 1, Figure 19 shows an overview of the current motor vehicle registration fees for special vehicles. Allocations of revenues generated by special motor vehicle registration fees vary depending on the permit; however, revenue is deposited into either the General Revenue Fund or State Highway Fund, as shown in Figure 20. SALES TAX ON LUBRICANTS The state s first sales tax was passed by the Fifty-seventh Legislature, 1961, and included motor fuel lubricants among taxable items. The sales tax on motor fuel lubricants is regulated by Texas Tax Code, Section All revenues generated from the sale, storage, or use of lubricating and motor oils used for motor vehicles on public roadways are statutorily required to be deposited to the State Highway Fund. The CPA is required to use available statistical data to estimate the consumption or sales of motor fuel lubricants and determine the amount of the state sales tax that should be deposited to the State Highway Fund from motor fuel lubricants based on this estimation. Figure 21 shows the amount of revenue deposited to the State Highway Fund from taxes on motor fuel lubricants since fiscal year Article VIII, Section 7-a of the Texas Constitution requires that all revenues generated from taxes on motor fuel lubricants used to propel motor vehicles over public roadways be used solely for acquiring rights-of-way; constructing, maintaining, and policing public roadways; and the administration of traffc and safety on public roadways. TOLL REVENUES AND COMPREHENSIVE DEVELOPMENT AGREEMENTS The Texas Turnpike Authority was created by the Fifty-third Legislature, 1953, to plan, finance, build, and operate toll facilities. From 1954 to 1957, construction occurred on the Dallas-Fort Worth Turnpike by a private entity. When the road opened, tolls were collected and the road was paid for in 17 years. When the state took over the Dallas-Fort Worth Turnpike, the road was debt-free and the road became Interstate 30. The Seventy-fifth Legislature, 1997, merged the Texas Turnpike Authority with TxDOT, and it became TxDOT s Texas Turnpike Authority Division. Figure 22 shows the Texas Turnpike Authority Fund Account s revenues and expenditures. The Texas Turnpike Authority board was continued and included six members and the Texas Transportation Commission chair as an ex-offcio member. The Harris County Toll Road Authority was created in 1983, and the North Texas Tollway Authority was created in 1997 when the Texas Turnpike Authority was abolished as an 12 TEXAS HIGHWAY FUNDING LEGISLATIVE BUDGET BOARD STAFF MARCH 2011

18 FIGURE 19 MOTOR VEHICLE REGISTRATION FEES FOR SPECIAL VEHICLES, 2010 REGISTRATION CATEGORY FEE AMOUNT ALLOCATION OF REVENUE Cotton or Cotton-related Equipment $8 State Highway Fund Excess Weight Base fee of $75 plus an additional General Revenue Fund and $175 $1,000 based on the number State Highway Fund of counties designated Ferry Sticker $0 (previous fees from $150 $800 applied) State Highway Fund Forestry Vehicles $8 State Highway Fund Hay Transports $10 State Highway Fund Manufactured Housing (single trip) $40 $19.70 to General Revenue Fund; $20.30 to State Highway Fund Manufactured Housing (annual permit) $1,500* Escrow account for the payment of permit fees Overlength Vehicle for Electrical Poles $120 State Highway Fund Oversize and Overweight Motor Vehicle $60 $270 ½ to General Revenue Fund; ½ to State Highway Fund Highway Maintenance Fee $150 $375 State Highway Fund Super Heavy or Oversize Equipment Not to exceed $7,000 First $1,000 to General Revenue Fund; remainder to State Highway Fund Port Authorities Not to exceed $80 Port authority may retain up to 10 percent Victoria County Navigation District Fee $80 General Revenue Fund Chambers County Fee Not to exceed $80 State Highway Fund Oversize and Overweight for $52 per axle State Highway Fund Oil Well Servicing Oversize Portable Buildings $15 ½ to General Revenue Fund; ½ to State Highway Fund Unladen Lift Equipment $100 ½ to General Revenue Fund; ½ to State Highway Fund *Statute prohibits this from exceeding $3,000; TTC has set the current fee at $1,500. Source: Legislative Budget Board. FIGURE 20 SPECIAL VEHICLE REGISTRATION FEES DEPOSITED TO THE STATE HIGHWAY FUND, FISCAL YEARS 2001 TO 2010 SPECIAL VEHICLE FISCAL REGISTRATION YEAR FEES (IN MILLIONS) 2001 $ $ $ $ $ $ $ $ $ $61.7 FIGURE 21 SALES TAX ON LUBRICANTS REVENUES DEPOSITED TO THE STATE HIGHWAY FUND, FISCAL YEARS 2001 TO 2010 FISCAL SALES TAX ON LUBRICANTS YEAR REVENUES (IN MILLIONS) 2001 $ $ $ $ $ $ $ $ $ $40.4 LEGISLATIVE BUDGET BOARD STAFF MARCH 2011 TEXAS HIGHWAY FUNDING 13

19 FIGURE 22 REVENUES AND EXPENDITURES FROM THE TEXAS DEPARTMENT OF TRANSPORTATION TURNPIKE AUTHORITY FUND ACCOUNT DEPOSITED TO THE STATE HIGHWAY FUND, FISCAL YEARS 1999 TO 2002 TXDOT TURNPIKE AUTHORITY FUND TXDOT TURNPIKE AUTHORITY FUND TXDOT TURNPIKE AUTHORITY FUND FISCAL ACCOUNT REVENUES ACCOUNT BEGINNING BALANCES ACCOUNT EXPENDITURES YEAR (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) 1999 $5.3 $6.4 $ $5.3 $8.0 $ $3.6 $ $0.1 $1.1 independent agency. These entities operate toll roads within the Dallas/Fort Worth and Houston metropolitan regions. Toll facilities are regulated in Texas Transportation Code, Chapter 222, Subchapter E. TxDOT is authorized to expend funds from any source for the construction, maintenance, and operation of the toll facility of a public or private entity. TTC may require repayment of funds TxDOT uses on a toll facility of a public entity, and TTC is statutorily required to receive repayment of funds spent on a toll facility of a private entity. TxDOT is prohibited from providing grants for the cost of a toll facility of a public entity in amounts greater than an annual average of $2 billion over a period of five fiscal years. The calculation of these expenditures does not include funds that are required to be repaid, including those subject to a legally binding agreement with a public entity. The Eighty-first Legislature, Regular Session, 2009 passed Senate Bill 883 to prohibit money in the State Highway Fund from being encumbered to guarantee a loan or insure bonds associated with a toll facility of a public or private entity. The first toll road operated by TxDOT was the Camino Columbia toll road in Webb County. This toll road was opened in October 2000 by a private operator and after three years was foreclosed upon. The road was auctioned for $12 million in 2004 and later purchased by TxDOT from the John Hancock Insurance Company for approximately $20 million. Figure 23 shows the toll revenues generated by toll roads for the State Highway Fund. TxDOT opened toll roads in the north Dallas metropolitan area during 2006 that were an expansion of State Highway (SH) 121. In September 2008, the North Texas Tollway Authority took over SH 121, which became the 121 Tollway. This tollway is continuing to be expanded and is expected to be completed in early In exchange for control over the FIGURE 23 TOLL REVENUES DEPOSITED TO THE STATE HIGHWAY FUND, FISCAL YEARS 2006 TO 2010 FISCAL TOLL REVENUE YEAR (IN MILLIONS) $ $ $ $ Tollway, NTTA paid TxDOT an agreed upon amount of $3.2 billion. The agreement between TxDOT and NTTA was the result of changes authorized by the Eightieth Legislature, Prior to the Eightieth Legislature, local transportation entities such as the Harris County Toll Road Authority and the North Texas Tollway Authority were not authorized to use all the financing mechanisms available to TxDOT to finance and construct transportation projects. Senate Bill 792 expanded the financing options available to local authorities for the financing of transportation projects. As a result of this legislation, certain counties and local toll project entities now have the first option to develop, finance, construct, and operate a toll project. If a county or local toll project entity chooses to develop a toll project, TxDOT and the local entity conduct a market valuation project, and the local entity then has six months to elect to develop the project. The local entity is also required to enter into a contract for the financing, construction, and operation of the project within two years of the completion of environmental and legal reviews. At this time the local entity must make a payment equal to the value of the toll project as agreed upon during the market valuation process or agree to construct other transportation projects in the local region that have an estimated value equal to the agreed upon value of the toll 14 TEXAS HIGHWAY FUNDING LEGISLATIVE BUDGET BOARD STAFF MARCH 2011